U.S. economy, hiring far from top speed

New jobs added in June likely to approach recent 190,000 average

WASHINGTON (MarketWatch) — The economy has sidestepped a lot of potholes in 2013, but the road ahead still isn’t wide open. The latest hiring figures are likely to show the U.S. falling well short of its top speed.

The employment report for June is the headline event in a holiday-shortened week. The latest snapshot on hiring will be released Friday, one day after Americans celebrate the nation’s birthday on July 4.

Other key reports will shed further light on trends in manufacturing, the auto business, construction and service-sector companies. Each is expected to strengthen.

“All the numbers are more likely to surprise to the upside than to the downside,” said Steve Blitz, chief economist of ITG Investment Research. “Everything is leaning in the right direction.”

Yet leaning, as Blitz also pointed out, is not the behavior of a robust economy. He doesn’t expect what’s now a modest pace of growth and hiring to stride rapidly ahead until 2014.

“The reality still stinks, but the trends are better,” he said. “Sooner or later the reality will start to catch up to the trends.”

The appetizers

The trend in manufacturing lately has been mixed. Sales and new orders softened a bit earlier in the year but they seem to be picking up. The Institute for Supply Management’s closely followed index is forecast to top 50% in June — the dividing line between expansion and contraction.

Construction spending, meanwhile, probably rose in May as home builders broke new ground. Home sales are on the up and up and warmer weather tends to draw more potential buyers.

Auto companies have also been on a roll lately. Sales perked up in May and demand could be even higher in June, analysts say. The industry is on track to sell more than 15 million autos in a year for the first time since 2007. Sales figures are released Wednesday.

Also Wednesday, investors will get a taste of what the jobs report might look like when ADP, the giant payroll processor, unveils its own look at private-sector hiring in June. ADP sometimes differs sharply with the government’s monthly figures, but the two reports move in tandem over time.

The main course

Monthly payroll growth has been modest.

After a one-day holiday hiatus, investors return on Friday to take in the June employment report. The economy may have added about 160,000 net new jobs last month, according to the MarketWatch survey. The unemployment rate is projected to slip a notch to 7.5% from 7.6%.

So far this year the U.S. has generated an average of 190,000 net jobs a month — the number of those hired minus those let go. That’s enough to slowly whittle down the unemployment rate, but faster hiring in the 250,000-a-month range is needed to put millions of jobless Americans back to work.

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Some economists think that day is approaching, but probably not until late 2013 at the earliest. Why the optimism?

Bob Baur, chief economist of Principal Global Investors, said bad times can’t last forever. He believes a flood of pentup demand among consumers and businesses is ready to be unleashed.

Economic uncertainty deterred Americans from replacing old cars or buying new homes and so forth, in his view, but an improving labor market and higher household wealth are giving them more confidence to spend. And businesses cut their payrolls as lean as ever, so they’ll need to hire lots of additional workers once demand picks up.

“We think the U.S. is turning into the driver of global growth,” Baur said.

Gary Thayer, chief macro-strategist at Wells Fargo Advisors, also sees the groundwork for an upswing being laid. He points to consumer confidence reaching a five-year high as evidence that the economy is closer to take-off.

Confidence tends to hew closely historically to rising or falling unemployment, he noted.

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